an evolving relationship with africa

an evolving relationship with africa

15 June 2018

This week, Jersey Finance participated and sponsored the 4th Annual Private Equity in East Africa Conference in Nairobi.

It represents an interesting evolution in the relationship between Jersey and the African continent, with a growing number of African-based fund managers looking to Jersey as an expert hub that can help them raise capital efficiently, safely and securely.

The indications are that many managers in Africa have great ideas and deal flow but are struggling to attract investment from large European institutional investors and pension funds. Jersey has the right funds ecosystem to provide them with a clear solution, thanks to its credentials on transparency, innovation and quality.

It’s good news for Africa, and it’s good news for Jersey – and it’s perhaps a strand of business that wouldn’t necessarily have been on the agenda five years ago, reflecting how dynamic Jersey is in Africa and how seriously we are taking our responsibility in helping Africa achieve its future growth potential.

There are good reasons to be positive on Africa’s fortunes at the moment. The International Monetary Fund, for instance, has estimated that Africa could be a key performer this year, for a number of reasons.

It points to the fact that Africa is poised for a recovery with growth expected to accelerate to 3.5% this year, up from 2.9% in 2017. Whilst growth will be fragmented across the continent, nearly a third of African economies will grow by around 5%.

In addition, Africa’s political landscape is liberalising, African leaders are getting serious about greater transparency and accountability, and Africans are benefiting from major technological disruption – there are now more than 995 million mobile subscribers in Africa, helping to boost Africa’s connectivity and empowering innovation.

In addition, there are signs that Africa is taking its growth prospects seriously and becoming more sophisticated in its approach. Earlier this year, 44 African countries signed up to the African Continental Free Trade Area to form a new bloc that is expected to boost intra-African trade. It’s an initiative that could create a market of 1.2bn people with a combined GDP of $2.5 trillion.

It’s a step in the right direction, but the findings of our Value to Africa research published a few years ago still hold true – sourcing foreign investment into Africa is absolutely vital for Africa’s future.

Africa’s working age population is expected to double to 1.2 billion over the next 30 years and to support this, Africa will need to invest $85 trillion in infrastructure. At current levels of investment, it will fall $11.4 trillion short of that, with combined, aid, domestic profits and local governments able to plug less than half of this gap. The remainder – $6.1 trillion – will have to come from high quality foreign direct investment, and that’s where centres like Jersey can play a really valuable role.

Nevertheless, powered by economic growth and supported by digital innovation, there’s no doubt that Africa is taking an increasingly global view, and as a result, Jersey is seeing increasing opportunity in supporting not just inbound investment into Africa, but outbound investment too. Our involvement in the Private Equity Conference in Nairobi is a case in point.

The Jersey/Africa relationship is not new, of course. Jersey has over many decades earned a positive reputation in the continent for its first-class private wealth expertise. However, this relationship is evolving – and there are a number of recent examples of Jersey firms moving into new areas like philanthropy, impact investing and alternative fund work.

Minerva and Affinity Private Wealth, for instance, both work with philanthropic structures aimed at social welfare, health and sustainable business projects across Africa; investment firm Harwell Capital recently agreed to increase its investment in mobile tower company Africa Mobile Networks (AMN); law firm Walkers has advised Westbrooke Alternative Asset Management, which has a presence in South Africa as well as the UK, on the launch of two Jersey Private Funds; Intertrust has provided administration services for ADP I LP, a Jersey fund targeting private equity investment across Africa; and Crestbridge has provided a range of services to a natural resources private equity fund focused on mining jurisdictions including those in Africa.

Meanwhile, we’ve also seen a growing amount acquisition and consolidation in the trust and corporate service provider space in recent years between Jersey and Africa – JTC’s acquisition of Kleinwort Benson’s fund administration business in South Africa; Ocorian’s acquisition of ABAX in Mauritius; Sanne’s acquisition of International Finance Services Limited and IFS Trustees; and PraxisIFM’s acquisition of Ampersand Management which has operations in Geneva and Mauritius.

Conversely, the SGG Group, which has offices in Mauritius and Johannesburg, acquired First Names Group recently, whilst South African pensions provider Alexander Forbes has indicated it is looking at creating a centre of offshore excellence in Jersey to service the needs of its Africa portfolio.

Our strategy remains absolutely focused on Africa and, thanks to our targeted marketing activity and events program, we continue to lead the way amongst IFCs in key African markets. Last year, we held events across Africa to build relationships with key gatekeepers in Lagos, Nairobi, Cape Town and Johannesburg, attracting a combined total of more than 300 finance professionals.

It’s vital that we maintain this focus in 2018 – already this year we’ve undertaken a number of events in Nigeria, Kenya and South Africa and participated in the Africa Financial Services Investment Conference in London. Later this year in October, Jersey Finance will be returning to South Africa to host Roadshow events in Johannesburgand Cape Town.

As Africa evolves, it’s clear that Jersey has the right expertise and regulatory framework to work with gatekeepers to support not only high-quality inbound FDI, but also to act as an investment gateway to the UK and Europe for African institutional grade as well as private investors.

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Can I use debt or gearing to make an investment into a S12J company?

Yes, you may utilise a loan / gearing to make an investment into a VCC, subject to complying with Section 12J(3)(a) of the Income Tax Act

What is the size of the S12J industry?

As at Feb 2018, there has been c. R3.6 billion raised into the Section 12J industry. Westbrooke is SA?s largest Section 12J fund manager, managing c.50% of the capital raised in the industry to date.

How long does the S12J incentive last for?

The VCC regime, introduced in 2009, is subject to a 12-year sunset period that ends on 30 June 2021. The upfront income tax relief will only apply to VCC shares acquired on or before 30 June 2021.The sunset clause is to be reviewed, and may be extended.

What is the term of my investment?

The term of the investment will be 5 years, with a realization period of 18 months (if required).

Does a section 12J investment carry risk?

As with any private equity investment, an investment in a Section 12J company carries risk. It?s important, therefore, to assess the investment strategy of the Section 12J company to ensure you understand the associated investment risk as well as the expertise and track record of the asset manager.

What is the annual limit per investor for subscriptions into a Section 12J company?

There is no annual limit for subscription into a Section 12J company.

Can the tax relief be recouped by SARS?

Only if you sell your shares within 5 years of their being issued, will you incur a recoupment and have the tax relief withdrawn.

What do I need to give SARS or my Tax Advisor to claim the deduction?

Westbrooke will provide each investor with a tax certificate which may be requested as evidence of their investment into a Section 12J company.

How can I obtain my tax relief?

Investors can claim the tax relief by either reducing their estimate of taxable income when submitting provisional tax returns or by obtaining a tax refund through the annual income tax assessment.

When can the tax deduction be claimed?

An investment into an approved Section 12J company is 100% tax deductible in the tax year you invest.

What is a Section 12J company?

A Venture Capital Company as described in Section 12J of the Income Tax Act, which came into operation with effect from 1 July 2009. Section 12J is a tax-based incentive designed to encourage individual and corporate investors to invest in a range of small and medium size companies by investing through Section 12J.

The aim of the incentive is to create a pooling mechanism of passive investors who get an upfront tax deduction for stimulating the South African economy.